Free Cash Flows Revised by C. Chang. Copyright 1996 by The McGraw-Hill Companies‚ Inc OUTLINE n n n n n n n What is FCF? FCFF? FCFE? How Do You Calculate FCFF? FCFF Calculation– the CFO Method FCFF Calculation– the EBIT Method Equivalence: FCFF(CFO) vs FCFF(EBIT) Free Cash Flow to Equity (FCFE) Free Cash Flow Example What is FCF? FCFF? FCFE? n Free Cash Flows to Firm (FCFF) n The cash produced by the business activities of a firm available for
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CASE 2 Cash Flow Estimation and Risk Analysis Robert Montoya‚ Inc. Robert Montoya‚ Inc.‚ is a leading producer of wine in the United States. The firm was founded in 1960 by Robert Montoya‚ an Air Force veteran who had spent several years in France both before and after World War II. This experience convinced him that California could produce wines that were as good as or better than the best France had to offer. Originally‚ Robert Montoya sold his wine to wholesalers for distribution
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8. Year 0 Year 1 Year 2 Taxable income $9‚100 $10‚250 $15‚300 Marginal tax rate .30 .30 .30 Tax $2‚730 $3‚075 $4‚590 Revenue $13‚000 $16‚250 $23‚400 Expenses (4‚250) (8‚000) (8‚100) Tax cost (2‚730) (3‚075) (4‚590) Net cash flow $6‚020 $5‚175 $10‚710 Discount factor (6%) .943 .890 Present value $6‚020 $4‚880 $9‚532 NPV $20‚432 11. a. Year 0 Year 1 Year 2 Year 3 Year 4 Before-tax cash flow $(500‚000) $52‚500 $47‚500 $35‚500 $530‚500 Tax cost (7‚875)
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The role of cash flow information in discriminating between bankrupt and non-bankrupt companies remains a contentious issue. In a number of literature reviews on bankruptcy prediction (e.g. Zavgren‚ 1983; Jones‚ 1987; Neill et al. 1991; Watson‚ 1996) the common view is that cash flow information does not contain significant incremental information content over accrual information in discriminating between bankrupt and non-bankrupt firms. (Divesh S. Sharma‚ Senior Lecturer‚ School of Accounting‚ Banking
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1. Prepare to explain the implications of case Exhibit 1 (Paige Simon’s first task). Based on that exhibit‚ is terminal value (TV) a material component of firm values? From the exhibit‚ we can find the PV of five years’ dividends is small part of the market price of the stock. In my opinion‚ we buy a stock then get dividend periodically‚ which like buy a bond. The coupon payment is dividend and the face value is terminal value. The bond value is determined by the terminal value mostly. So the stock
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Delia Stephanie Doherty David Dubois Radu Oprea December 19th‚ 2009 Contents Objectives 1 Management Summary 1 Financial Health 1 Financial Forecast for 2002 and 2003 3 Key Driver Assumptions 5 Star River WACC 5 Free Cash Flows of the Packaging Machine Investment 7 Appendices 7 i. Objectives This report seeks to answer the following five questions about Star River Electronics Ltd.: 1. Assess the current financial health and recent financial performance of the company. What
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Discounted Cash Flow Homework Problems Please post the answers (and show your work) in the assignments section by midnight the last day of the week assigned. 1. Calculate the future value of 1‚535 invested today for 8 years at 6 percent. (5 points) $1535 * 1.5938 = $2‚446 2. What is the total present value of the following cash stream‚ discounted at 8 percent? (5 points) |Year |Amount |Rate |PV | |1 | $ 400
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1 – Methodological Approach In this case‚ American CC – the intended acquirer of AirThread Connections- will use leveraged buyout (LBO) model‚ which means the company will finance the acquisition through bank loan or some other borrowing methods. Hence‚ the debt-to-equity ratio will change in time. Since we will need to estimate the discount rate any time the capital structure changes‚ neither WACC nor APV would be reliable alone. Therefore‚ Ms. Zhang should use the combination of WACC and APV
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DCF Modeling Copyright 2008 © by Wall Street Prep‚ Inc. ***************************** SAMPLE PAGES FROM TUTORIAL GUIDE ***************************** Table of contents SECTION 1: OVERVIEW DCF in theory and in practice Unlevered vs. levered DCF SECTION 2: MODELING THE DCF Modeling unlevered free cash flows Discounting to reflect stub year and mid-year adjustment Terminal value using growth in perpetuity approach Terminal value using exit multiple approach Calculating net debt Shares outstanding
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Information Given by Cash Flow Statements: A cash flow statement is a special document that is a mandated to be prepared by the accountants of any firm. Cash flow statements are nothing but the record of all the cash transactions that take place in a company. It is important for the financial statements of a company to make and have cash flow statements because the cash flow statements demonstrate the ability of a company to generate cash. The incoming and the outgoing cash are all recorded via
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